Even a fall in the oil price is bad news for Eurozone
“Much of the world’s economic history over the past 70 years can be told in relation to movements of the oil price” - By Roger Bootle for The Telegraph
The below commentary on the article is written by Anthony O'Brien
That oil prices fell to $US78 per barrel last week, the lowest since 2010, is highly significant. Moreover, there is a good chance that they will fall much further.
Lower oil prices should benefit the eurozone economies. Indeed, much lower oil prices might be the only thing that can lift the eurozone economy from its current torpor. But there is also a threat that does not apply to the same extent to other countries.
This is because the eurozone is perilously close to deflation, that is to say, a point at which overall consumer prices fall. That may not sound so bad. Indeed, often it isn’t, but it is downright dangerous in an economy saddled with as much debt as the eurozone.
Deflation raises the real burden of debt and therefore increases the chance of a debt disaster, involving a sovereign default and leading to a new banking crisis.
To read the full article click here
Frequently Asked Questions about this Article…
Falling oil prices are significant for the eurozone because they could potentially lift the economy from its current sluggish state. However, there's a risk of deflation, which could increase the real burden of debt and lead to financial instability.
Lower oil prices could benefit the eurozone by reducing costs for businesses and consumers, potentially stimulating economic activity. This could be crucial for reviving the eurozone's economy, which is currently struggling.
Deflation is when overall consumer prices fall. It's a concern for the eurozone because it can increase the real burden of debt, raising the risk of a debt crisis and potentially leading to a banking crisis.
Yes, falling oil prices could lead to a debt crisis in the eurozone if they contribute to deflation. Deflation increases the real value of debt, making it harder for countries to manage their financial obligations.
Oil prices have played a significant role in global economic history over the past 70 years, influencing economic growth, inflation, and financial stability across different regions.
While lower oil prices can reduce costs and stimulate the economy, they also pose the risk of deflation, which can exacerbate debt issues and lead to financial instability in the eurozone.
The eurozone economy is currently in a sluggish state, facing challenges such as high debt levels and the risk of deflation, which could be exacerbated by falling oil prices.
Oil prices affect consumer prices by influencing the cost of goods and services. Lower oil prices can lead to lower consumer prices, but in the eurozone, this also raises concerns about deflation and its impact on debt.
Call 1300 880 160
Start a chat
Schedule a call
